Q+A: New Depositary Receipt Markets

Anthony Moro, head of EMEA depositary receipts at BNY Mellon in New York, sees countries around the world developing their own DRs.

Global Finance: What’s the argument for companies to use DRs to raise capital?

Anthony Moro: If you are going to list outside of your home country, in most circumstances, the DR is really the only efficient option that you have. As the custodian of the shares, we sit as one investor on the company’s local register. When it pays dividends, it pays us. As the depository, we Americanize the dividend, which means turning it into US dollars, and we distribute it to the US investor base.

GF: Going forward, how do you expect the DR market to grow?

Moro: Now that most of world has a DR program available in the US, it’s really about growing the pool of existing DRs. Secular trends have certainly been in favor of our business. Each year, we see more DRs outstanding than in the last year, which means that the percentage of the portfolio that US investors invest in international equities is going to increase each year. And we expect it to continue.

GF: Where do you expect to see the most growth?

Moro: Regionally, it’s Asia. China is really the only country that continues to do relatively well. It had quite a big setback with accounting scandals in the last couple of years, but there are so many big companies there that will find an audience in US. Ali Baba led the pack last year with the biggest IPO of all time, which was done 100% in ADRs. That says something right there.

GF: Which sector looks most promising?

Moro: Healthcare and biotechnology have by far been the most active sectors over the last three years. If you find a better way to provide healthcare or discover a new drug, it doesn’t really matter if the market is up 2% or down 2% that day. Your company will do well.

GF: How do you expect the DR market to evolve over time?

Moro: One of the trends globally is what we call “passport DRs.” Probably 12 different countries, including Hong Kong, Mexico, Russia and South Africa, have different versions of DRs that are attracting companies outside of their home markets to list on their exchanges.

GF: What does this mean for DR providers?

Moro: It means more opportunities to provide cross-border solutions. A DR turns a foreign security into a local security. Ideally, we have the global infrastructure to turn any foreign stock into local stock. Whether they are ADRs or GDRs or BDRs or HKDRs, it doesn’t really matter. We have the infrastructure in place, and we’re really just waiting for the regulatory stuff to catch up.